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•Megaupload applied today to the High Court of Hong Kong to set aside US DOJ-driven restraint order

•Megaupload’s Hong Kong court application is part of a global effort to free up assets needed to negotiate via US Court procedure the return of data to cloud storage users

Hong Kong—Megaupload Limited (“Megaupload”) has applied to the Court of First Instance of the High Court of Hong Kong, by way of summons dated 9 April 2014, to set aside a restraint order obtained by the Hong Kong Department of Justice (“HK DOJ”) in January 2012. That order, which was requested by the United States Department of Justice (“US DOJ”) under the Mutual Legal Assistance in Criminal Matters Ordinance in connection with a criminal proceeding in the United States District Court for the Eastern District of Virginia, restrains Megaupload from dealing with its assets in Hong Kong.

The order was granted on the basis of an ex parte application by the HK DOJ made at the request of the US DOJ. The grounds for discharge of the order is the failure by the HK DOJ—acting on the basis of information provided by the US DOJ—to fully and frankly disclose in that ex parte application serious legal issues relating to the US DOJ’s inability to serve Megaupload with a criminal summons in accordance with United States federal law. Among other things, the US DOJ failed to explain how it intended to comply with the service of process requirements imposed by the Federal Rules of Criminal Procedure, which, as argued in Megaupload’s application, are an essential prerequisite to initiating any criminal proceedings against Megaupload and cannot be satisfied for a corporation that has no physical presence or subsidiaries in the United States. Megaupload has submitted those filings with its application to the High Court.

Megaupload’s global litigation counsel Ira Rothken said that “Over two years later, the US DOJ has yet to serve Megaupload or initiate substantive criminal proceedings against it, trapping Megaupload in a state of criminal limbo. During that time, the restraint order has prevented Megaupload from conducting business or paying bandwidth expenses needed to return cloud storage data to users. Needless to say, Megaupload and its cloud storage users have been severely prejudiced by the US DOJ’s conduct. Indeed, as further argued in Megaupload’s application, the US DOJ’s inability to prosecute Megaupload over this long period of time is grounds to discharge the injunction independent from the US DOJ’s nondisclosure”.

In support of its application, Megaupload has submitted through its Hong Kong legal team expert affidavits by Richard Davis and Robert Weisberg concerning the US DOJ’s ability to serve Megaupload. Mr Davis is a U.S. lawyer in private practice. He is a former Assistant U.S. Attorney and member of the Watergate Prosecution Force, and was previously partner at a prominent international law firm. Mr Weisberg is currently the Edwin E. Huddleson, Jr. Professor of Law at Stanford Law School. He works in the field of criminal law and criminal procedure, and founded and now serves as faculty co-director of the Stanford Criminal Justice Center.

The DOJ release today is made up of "recycled allegations" that don't point to criminal copyright infringement. The Megaupload conversations are about whether cloud storage users are doing bad things on the site. At best, the conversations allege secondary copyright infringement (where the DOJ is trying to hold Megaupload responsible for the infringing acts of cloud storage users), and the U.S. Congress has not yet created a criminal statute against secondary copyright infringement.

This text is taken from the official letter found here.Here is the scanned unformatted text of Megaupload's counsel's letter to Judge Anderson below:

We are writing to alert the Court to the recent revelation that on February 1, 2013, LeaseWeb deleted all data from 630 servers previously leased to Megaupload in the Netherlands. ) This wholesale destruction of millions of Megaupload users' personal files was in direct contravention of Megaupload's and Electronic Frontier Foundation's (EFF) repeated requests to LeaseWeb for data preservation pending resolution of the U.S. criminal case. Specifically, in a letter dated April 3, 2012, EFF wrote to Leaseweb "to formally request that [LeaseWeb] preserve that material both for purposes of contemplated future litigation and as a matter of obligation and courtesy to the innocent individuals whose materials have unfortunately been swept up into this case." EFFs letter further requested "that anyone with access to our client's materials, or evidence potentially relevant to an action filed on behalf of our client or other similarly situated third parties, immediately institute a litigation hold that covers all reasonably potentially relevant evidence, e.g., the complete set of data on servers used by Megaupload."

Similarly, on March 1, 2012, Megaupload asked LeaseWeb to confirm"that it will preserve the Megaupload data" noting that "this request is supported by multiple axiomatic reasons including that it is relevant evidence in a pending criminal case in the US, potential civil case(s), and destruction of such data will interfere with the possible return of such data to consumers'." In addition to destroying petabytes of Megaupload user data, Leasewebs actions have impaired our clients' defense, as the servers contained vast amounts of potentially exculpatory evidence directly relevant to the U.S. criminal case. While LeaseWeb's deletion of relevant evidence in the face of explicit preservation requests is inexcusable, the United States is equally culpable. The Government was plainly on notice of the need to preserve the LeaseWeb servers. As Megaupload has long maintained, by freezing the Defendants' assets and denying Defendants access to or possession of the servers, the Government has exercised de facto control over the servers and is therefore in constructive possession of them. Under Brady v. Maryland, 373 U.S. 83 (1963) and its progeny, the Government had an affirmative duty to ensure the preservation of the LeaseWeb servers and the exculpatory evidence they may have contained. The Government failed to do so.

The destruction of the LeaseWeb servers demonstrates the urgent need to reach a workable solution for data preservation as soon as possible, lest the 1,103 servers currently in Carpathia Hostings possession meet the same fate.

We therefore respectfully urge the Court to reconvene the interested stakeholders and renew negotiations as quickly as the Courts schedule permits.

The DOJ took down Megaupload depriving millions of consumers of access to their cloud data - the question was asked what if any public policies were implicated. Watch Megaupload's counsel Ira P. Rothken's response:

Since first seeking dismissal, Megaupload has maintained that the Government has no prospect of ever serving the company in compliance with Rule 4 as the company is a foreign corporation with no office in the United States. As a result, Megaupload is trapped in a state of criminal limbo, where it is subjected to daily, irreparable harm from criminal indictment and the seizure of its assets, while being denied the benefits of the adversarial process and protections. Watch Megaupload's counsel Ira Rothken discuss the Government's unfair and extreme view.

Megaupload filed in Federal Court today in the Eastern District of Virginia a rebuttal brief in support of its request for judicial notice that further demonstrates the US Department of Justice advised the Megaupload Court that a foreign corporation did not need a US mailing address for proper service of a criminal indictment while on the other hand advising the Federal Rules Committee of the opposite view in order to change the law. Please see the text of the submissions below.

REBUTTAL OF SPECIALLY APPEARING DEFENDANT

MEGAUPLOAD LIMITED in SUPPORT of ITS REQUEST FOR JUDICIAL NOTICE

Specially Appearing Defendant Megaupload Limited (“Megaupload”), respectfully submits this reply in further support of its Request for Judicial Notice. (Dkt. 171.)

A. The Government Does Not Object to Judicial Notice

The Government does not object to Megaupload’s request that the Court take judicial notice of the Department of Justice’s letter to the Advisory Committee on the Criminal Rules seeking Amendment of Rule 4. (See Dkt. 172 at 2 (“The United States takes no position regarding the request for judicial notice . . .”).) As such, Megaupload’s request should be granted.

B. By Its Letter, The Government Implicitly Acknowledges Its Inability to Effect Proper Service While the Government offers no protest to judicial notice, it nevertheless accuses Megaupload of mischaracterizing the Department’s position in the letter, and insists that it never conceded that Rule 4’s mailing provision is a mandatory requirement of valid service. (See Dkt. 172 at 2-3.) The plain language of the Government’s letter shows otherwise:

Rule 4(c)—former Rule 9(c)—regarding serving a summons on an organization reflected these realities and imposed a dutyon the government to serve the summons on an individual, such as an officer or agent—the delivery requirement—and to mail the summons to the organization’s last known address within the district or its principal place of business in the United States—the mailing requirement.

(See Dkt. 171-1 at 2 (emphasis added).) Indeed, by the very relief that it seeks—asking that “Rule 4 be amended to remove the requirement that a copy of the summons be sent to the organization’s last known mailing address within the district or principal place of business within the United States”—the letter implicitly acknowledges that the Government cannot properly serve Megaupload under the existing Rule. (See id. at 1 (emphasis added).) The letter therefore directly bears upon and supports Megaupload’s pending request for dismissal of the Superseding Indictment. (E.g., Dkt. 146.)

Attempting to retreat from the concessions in its letter, the Government points to United States v. Kolon Industries, Inc., 2013 WL 682896 (E.D. Va. Feb. 22, 2013), which concluded that Rule 4’s insistence that the summons “must” be mailed to the corporation’s last known address within the district or its principal place of business in the United States does not actually mean what it says. According to the court in Kolon, the mailing “requirement” is no requirement at all. The Government’s reliance on Kolon is misplaced, however, as its reasoning and conclusion are directly contradicted by the express terms of the Rule itself. In a more recent case, United States v. Pangang Group, a judge in the Northern District of California rejected Kolon and reaffirmed that Rule 4’s mailing provision is a prerequisite to valid service of process on a corporation:

It is true that the mailing requirement does not use the term “serve,” whereas the delivery requirement does. Further, as the Kolon court noted, “‘courts must presume that a legislature says in a statute what it means and means in a statute what it says there.’” The Kolon court, however, did not fully address the fact that the mailing requirement uses the term “must,” which connotes a mandatory requirement, rather than a hortatory or precatory requirement. The Court, therefore, assumes that the drafters intended the mailing requirement to be a mandatory component of effective service. This interpretation is reinforced by the fact that the admonition that a copy of the summons must be mailed is repeated in the Advisory Committee notes. See Fed. R. Crim. P. 4, 2002 Amendments, advisory committee note (“Under the amended rule, in all cases in which a summons is being served on an organization, a copy of the summons must be mailed to the organization.”). Further, when one examines the text of Rule 4, in its entirety, it is apparent that the drafters knew how to account for contingencies. See, e.g., Fed. R. Crim. P. 4(b)(1)(A), 4(c)(3)(A).

United States v. Pangang, No. CR 11-00573-7 JSW, Dkt. 293 at 9 (N.D. Cal. Apr. 8, 2013) (internal citation omitted) (emphasis added).[1] The holding of Pangang—unlike the holding in Kolon—is consistent not only with prior precedent, see, e.g., United States v. Johnson Matthey PLC, 2007 WL 2254676, at *1-2 (D. Utah Aug. 2, 2007) (recognizing that “Rule 4 has two requirements” and quashing service of the summons because the Government failed to satisfy the mailing requirement), but also with the Department of Justice’s own position in its letter to the Advisory Committee. It thus further supports Megaupload’s request that the Superseding Indictment be dismissed unless and until the Government is able to comply with both the delivery and mailing requirements of Rule 4.

D. The Government Now Admits That, Absent Dismissal, Megaupload Will Be Indefinitely Stuck in Criminal Limbo

Since first seeking dismissal, Megaupload has maintained that the Government has no prospect of ever serving the company in compliance with Rule 4. As a result, Megaupload is trapped in a state of criminal limbo, where it is subjected to daily, irreparable harm from criminal indictment and the seizure of its assets, while being denied the benefits of the adversarial process and protections. The Government’s repeated response has been that “the United States will be in a position to serve Defendant Megaupload with a summons through the individual codefendants, who are officers and agents of the organization, after they arrive in the United States following extradition.” (E.g. Dkt. 159 at 3.)

The Government has now changed its tune, claiming that because of delays in the extradition process, “it is likely that any ‘temporary’ dismissal would be permanent and contrary to the interests of justice.”[2] (See Dkt. 172 at 2 n.2; see alsoid. at 6 (“Such dismissal, even without prejudice, would harm (perhaps fatally) the government’s ability to fully prosecute serious criminal conduct of the corporate defendant Megaupload . . . .”).) The Government thus seems to confirm what this Court has already observed—namely, “that the individual defendants may never be extradited” (Dkt. 127 at 5 n.6.) and criminal proceedings may therefore never commence. Given this reality, due process demands that the Superseding Indictment be dismissed.

CONCLUSION

For the foregoing reasons, specially appearing Defendant Megaupload Limited respectfully requests that the Court take judicial notice pursuant to Federal Rule of Evidence 201 of the Department of Justice’s letter to the Advisory Committee on the Criminal Rules.

[1] A copy of the Court’s decision in Pangang is attached as Exhibit 1.

[2] The Government falsely suggests, once again, that delays in the extradition process are attributable to the individual defendants. As noted in previous pleadings, it was the Government that has delayed extradition proceedings by filing appeals of the New Zealand courts’ rulings. More importantly, the appeals have been necessitated by the fact that the Government has been found to have participated in unlawful activity, as determined by two separate branches of the New Zealand government.

1. The United States has charged Kim Dotcom and the rest of the Megaupload defendants with criminal copyright infringement for the acts of cloud storage users, a form of secondary copyright infringement, but no criminal statute for secondary copyright infringement exists under US law. The attempt by prosecutors to expand criminal liability to secondary copyright infringement goes against established precedent in case law and repeated positions taken by the US Congress.

The fundamental legal problem with this aspect of the government’s case is that only Congress can create new criminal liability; judges cannot. Previous instances in which courts have imposed “civil liability for secondary copyright infringement” do not apply in criminal proceedings. Courts and judges cannot create a new criminal liability, only Congress can by enacting legislation. Federal crimes must be expressly authorised by statute; the courts have no power to impose or create a basis for criminal liability beyond what’s authorised by statute.

2. Cloud storage services such as Megaupload are a dual use technology capable of substantial non-infringing uses and therefore protected under the Sony doctrine. Any kind of online service, including cloud storage services, are susceptible to misuse by some customers. Megaupload instituted several measures to comply with global “safe-harbor” provisions such as those under the Digital Millennium Copyright Act (DMCA). Megaupload cooperated with copyright owners by following the “notice and takedown” procedures described in the DMCA millions of times.

The recent federal court decision in Viacom v YouTube upholds the safe-harbour provisions of the DMCA, declaring unequivocally that generalized knowledge of copyright infringement does not deprive a service provider of those protections. The court noted that service providers serve a useful function. Given the volume of content being uploaded/downloaded on a site like YouTube “no service provider could possibly be aware of the contents of each such video.” Congress put the burden on the copyright owner to notify the service provider of infringements, in writing and with specified contents. The court concluded that the burden could not be shifted back to YouTube to disprove its knowledge. The Viacom court also emphasized that YouTube was not required to affirmatively seek out or locate any infringing material; it had no duty to do so.

Megaupload went above and beyond what it was legally required to do under the DMCA’s safe-harbour provisions. It negotiated with numerous major copyright holders or their agents, including the Recording Industry Association of America, Disney, Warner Brothers, NBC and Microsoft, to allow them access to remove directly an active link to material they believed infringed their copyrights. This direct access enabled such parties to protect their copyrights in a fast and automated fashion and resulted in more than 15 million take-downs.

3. Criminal copyright infringement requires willful infringement – a very rigorous level of criminal intent – and it is one of the rare criminal claims where both ignorance of the law and a defendant’s mistaken belief that he is compliant with the law are complete defenses. Megaupload immediately responded to copyright take-down notices from copyright holders on millions of occasions. The company’s subjective belief that it was operating within the law (even if it turns out to have somehow been wrong in that regard) should by itself be enough to negate the criminal willfulness requirement, especially considering the novel nature of the prosecution’s legal theory.

The criminal prosecution of Megaupload and Kim Dotcom is purportedly the “largest copyright case in history,” involving tens of millions of users around the world, and yet it is founded on highly dubious legal principles and apparently propelled by the White House’s desire to mollify the motion picture industry in exchange for campaign contributions and political support.

The U.S. government’s attack on the popular cloud storage service Megaupload and the dramatized arrest of Kim Dotcom, the company’s principal founder – together with the seizure of all their worldwide assets – represents one of the clearest examples of prosecutorial overreach in recent history. One day after the U.S. Congress failed to enact the controversial Stop Online Piracy Act (SOPA), the executive branch of the U.S. government commandeered Megaupload in a coordinated global take-down, and drew battle lines between digital rights advocates, technology innovators and ordinary information consumers on the one side, and Hollywood and the rest of the Copyright Lobby on the other.

Megaupload operated for seven years as a successful cloud storage business that enabled tens of millions of users around the world to upload and download contentof the users’ own choosing and initiative. The spectrum of content ran from (to name just a few) family photos, artistic designs, business archives, academic coursework, legitimately purchased files, videos and music, and – as with any other cloud storage service – some potentially infringing material. Despite Megaupload’s lawful uses, the U.S. government has charged the company and its executives under the Racketeer Influenced and Corrupt Organizations (RICO) Act, and has branded the company, its personnel and its tens of millions of users a “criminal enterprise” dedicated solely to infringing U.S. copyright laws.

The U.S. government’s case against Megaupload is grounded in a theory of criminal secondary copyright infringement. In other words, the prosecution seeks to hold Megaupload and its executives criminally responsible for alleged infringement by the company’s third-party cloud storage users. The problem with the theory, however, is that secondary copyright infringement is not – nor has it ever been – a crime in the United States. The federal courts lack any power to criminalize secondary copyright infringement; the U.S. Congress alone has such authority, and it has not done so.

Megaupload filed in Federal Court today in the Eastern District of Virginia a Request for Judicial Notice that demonstrates the US Department of Justice advised the Megaupload Court that a foreign corporation did not need a US mailing address for proper service of a criminal indictment while on the other hand advising the Federal Rules Committee of the opposite view in order to change the law. Please see a summary of the submissions below.

Specially appearing Defendant Megaupload Limited (“Megaupload”) respectfully requests that the Court take judicial notice pursuant to Federal Rule of Evidence 201 of a letter submitted by the United States Department of Justice to the Advisory Committee on the Criminal Rules, recommending amendments to Rule 4 of the Federal Rules of Criminal Procedure “to permit the effective service of a summons on a foreign organization that has no agent or principal place of business within the United States.” (See Letter from Assistant Attorney General Lanny Breuer to the Honorable Reena Raggi, Chair, Advisory Committee on the Criminal Rules, dated October 25, 2012, a true and correct copy of which is attached as Exhibit 1.) Specifically, the Government asks the Advisory Committee to “remove the requirement that a copy of the summons be sent to the organization’s last known mailing address within the district or principal place of business within the United States,” and to amend the Rule to “provide the means to serve a summons upon an organization located outside the United States.” (Id.) In doing so, the Government implicitly acknowledges that it cannot properly serve Megaupload—a Hong Kong corporation with no U.S. agent or office—under the existing Rule.

The Government’s letter is directly relevant to the Court’s consideration of Megaupload’s pending motion to dismiss without prejudice (Dkt. 146) as it contradicts the Government’s repeated contention that it can validly serve Megaupload—a wholly foreign entity that has never had an office in the United States—without complying with Rule 4’s mailing requirement. To the contrary, the Government explicitly acknowledges in the letter that it has a “duty” under the current Rule to mail a copy of the summons to a corporate defendant’s last known address within the district or to its principal place of business elsewhere in the United States. (See Exhibit 1 at 2.) Moreover, by seeking to have the mailing requirement eliminated, the Government implicitly admits it cannot validly serve Megaupload consistent with Rule 4 as currently written.

The Government’s letter to the Advisory Committee thus confirms what Megaupload has argued all along—that the Government indicted Megaupload, branded it a criminal, froze every penny of its assets, took its servers offline, and inflicted a corporate death penalty, notwithstanding the fact that the Government had no prospect of serving the company in accordance with current law. Megaupload should not be made to bear the burdens of criminal limbo while the Government seeks to rewrite the Federal Rules to suit its purposes.

Megaupload submitted to the Federal Court in the United States today the final brief in the latest round urging the Court to dismiss the case without prejudice.

Megaupload argues in the introduction:

"By its opposition brief (see Dkt. 159), the Government seeks to persuade the Court that Defendant Megaupload Limited (“Megaupload”) has suffered no harm or deprivation of due process as a result of the Government’s continued failure to serve the company in accordance with the Federal Rules of Criminal Procedure. The facts show otherwise. More than a year has now passed since Megaupload was branded a criminal, with no opportunity to date to clear its name or to challenge the charges against it. More than a year has passed since every penny of the company’s assets was frozen, yet there has been no pre- or post-seizure hearing for Megaupload to contest the propriety of that action. Megaupload’s servers—which house the universe of relevant evidence against which the Government’s allegations against Megaupload might potentially be fully and fairly assessed one day—have been taken offline for lack of funding (while the Government sits on all the assets it has seized from Megaupload), gathering dust and in danger of deteriorating. And Megaupload’s innocent consumers have been forced to go more than a year without any access to their property.

The ability of a criminal defendant to mount, not only in theory but also in practice, a fair defense should be beyond question. The Government’s conduct of this case is to the contrary, raising grave questions about whether the Government is intent on being judge, jury, executioner, and asset collector without benefit of the adversarial process and protections, including those of Rule 4, to which this corporation is entitled. Certainly the prosecution to date—by freezing assets, by foreswearing proper service, and by steadfastly refusing to lift a finger or spend a cent to prevent ongoing spoliation of server evidence (not to mention deprivation of innocent users’ rightful property)—has denied Megaupload any semblance of due process. Megaupload asks this Court to right that wrong by dismissing the Superseding Indictment without prejudice and until such as time as the Government serves (if it is able to do so) Megaupload consistent with the requirements of Federal Rule of Criminal Procedure 4—and thereby freeing the corporate defendant from the criminal limbo that is presently subjecting it to daily, irreparable harm."

The Electronic Frontier Foundation (EFF) filed a brief today in Federal Court in the United States on behalf of their client, Kyle Goodwin, supporting Megaupload's position that if the current Court finds that the Government misled the prior Court in seizing the domain(s) and taking down the Megaupload cloud storage site then this Court should provide a remedy under Rule 41(g).

The EFF brief declared:

"Megaupload’s recent filings, however, increase the concern and set forth additional potential bases for the property’s return, including that the seizures may have been based on misleading affidavits. Consequently, at the very least Megaupload, via counsel, should be granted leave to participate in any hearing held under Fed. R. Crim. P. 41(g), and any such hearing should explicitly consider the validity of the relevant search warrants (which includes at least those found at 1:12-sw-34, 1:12-sw-35, 1:12-sw-36, 1:12-sw-37, and 1:12-sw-40).

Specifically, Megaupload alleges that the government relied on Megaupload’s explicit cooperation with the government pursuant to a warrant from June 2010 (the “2010 warrant”) to form the basis of its criminal allegations in this action. Dkt. Nos. 156; 153-2 at 7. If this is true, as Megaupload argues, fundamental questions exist about the validity of the search warrants executed in this action. Id. at 4, 10. If the warrants are invalid—particularly if that invalidity is based on intentional wrongdoing by the government—then Mr. Goodwin should be entitled to return of his property. U.S. v. Comprehensive Drug Testing, Inc., 513 F.3d 1085, 1105 (9th Cir. 2008) (“CDT I”)."

On January 16, 2013 in the United States Megaupload submitted to the Court a rebuttal brief alleging that the DOJ misled the Court in the takedown of the Megaupload cloud storage site. Here is a copy of the submitted brief and the contents of the main brief is below:

On January 2, 2013, Megaupload Limited (“Megaupload”) sought leave (Dkt. 153) to file two proposed briefs: (i) a supplemental brief regarding the Rule 41(g) hearing contemplated by the Court (Dkt. 153-2), and (ii) a motion to unseal certain search-warrant materials that Megaupload quoted in its proposed supplemental brief (Dkt. 153-3). At that time, Megaupload believed in good faith that the search-warrant materials from which it quoted were only partially unsealed. A diligent search of PACER revealed no indication that the warrants had been fully unsealed. When Megaupload’s counsel inquired of the Government on January 2, 2013 whether the Government objected to the unsealing of those materials, the Government responded: “I have asked our folks working on the 41(g) stuff to look into it.” The Government did not inform counsel that the materials were already unsealed; indeed, the email exchange suggested that the Government, like Megaupload, believed the materials remained under seal. Thus, out of an abundance of caution, Megaupload filed its proposed brief under seal while simultaneously moving to unseal the search-warrant materials. Now apprised that any such request is moot because the warrant has already been unsealed, Megaupload will of course move to withdraw its proposed motion to unseal and request that the clerk simply substitute the unredacted version of the proposed supplemental brief on the public docket.

Turning to the merits of Megaupload’s application to file a supplemental brief regarding the Rule 41(g) hearing, the Government challenges the application, including the merits of the proposed supplemental brief. Yet nowhere does the Government come to grips with or explain the critical revelation that drives Megaupload’s supplement—namely, that the Government, when it came before this Court to claim probable cause for its 2012 application at issue, mischaracterized Megaupload as having evinced criminal mens rea by failing to remove files the Government had identified as infringing in a 2010 warrant, without apprising this Court that Megupload had in fact been cooperating with what was, as Megaupload was told at the Government’s instruction, a secret, ongoing criminal investigation to which the targets (supposedly not Megaupload) must not be alerted. More specifically, the Government does not deny that:

• it knew but did not apprise the Court that Megaupload had learned of the allegedly infringing files while voluntarily cooperating with the Government in its separate investigation;

• it knew but did not tell Megaupload that Megaupload, itself, was an investigatory target at the time;

• the Government had tasked Carpathia Hosting (“Carpathia”) with instructing Megaupload to maintain the secrecy of the investigation;

• the Order sealing the June 24, 2010 warrant similarly indicated the need, per the Government’s insistence, to avoid tipping off investigatory targets; and

• Megaupload did precisely what it was asked to do, namely collect and provide evidence to the Government and do so without tipping off the identified targets of the investigation.

In sum, the Government misled the Court into believing that Megaupload’s failure to block access to the files was a result of its willful indifference to the allegedly criminal material they contained. The truth, as demonstrated by the documentary record undisputed by the Government, is that Megaupload acted under a reasonable understanding that it was expected by the Government and the Magistrate Court that issued the sealing orders (at the Government’s request) to preserve the files identified in the June 2010 warrant without disturbing them or taking any other action that could compromise the secrecy of the investigation with which it was cooperating. No doubt, the Government may have charged Megaupload with obstructing a federal investigation, either as a principal under 18 U.S.C. 2 or as an accessory after the fact under 18 U.S.C. 3, had it done anything to disturb the status quo and thereby tip off the targets of the investigation.

​Against the stunning backdrop of the above concessions, the Government’s arguments amount to little more than distractions:

First, the Government once again challenges Megaupload’s ability to file motions while maintaining jurisdictional defenses. This argument is now moot, as the Court has granted Megaupload leave to enter a limited appearance. (See Dkt. 156.)

Second, the Government frames Megaupload’s motion as an effort to “to join a third-party’s civil action in equity against the United States,” in order to “seek a remedy available only to criminal defendants”—namely, suppression of evidence. Neither characterization is accurate. Kyle Goodwin’s motion for return of property was not filed as a separate civil action, but instead as part of the instant criminal proceeding against Megaupload. (See Dkt. 90.) Megaupload has a direct interest in that hearing—both because it is best situated to locate, access, and retrieve the data at issue in an expeditious, cost-efficient manner, and also because issues of data preservation and consumer access are inextricably bound up with Megaupload’s criminal defense and attendant entitlement to due process. Megaupload seeks only to be heard at that hearing. And, far from attempting to suppress any evidence, Megaupload is simply alerting the Court to critical evidence that has recently come to light. Considering that this Court has ordered briefing and hearing “concerning the applicability of Federal Rule of Criminal Procedure 41(g)” (Dkt. 126), and Rule 41(g) calls for inquiry into whether the search and seizure of the property at issue was or was not “unlawful,” it is difficult to understand how arguments against the lawfulness of the underlying warrants could be out of place at this point.

Third, the Government attempts to distance itself from what Megaupload was told about the 2010 warrant by emphasizing that it did not directly instruct Megaupload to preserve the allegedly infringing files. (Dkt. 155 at 3.) But it is well settled that a private party’s actions are imputed to the Government when that party is enlisted by the Government and acts in accordance with the Government’s instructions. Thus, courts confronting criminal searches and seizures have consistently found Fourth Amendment interests implicated where a private party acts as the Government’s “instrument or agent.” See Skinner v. Railway Labor Executives’ Ass’n, 489 U.S. 602, 614 (1989); United States v. Richardson, 607 F.3d 357, 364 (4th Cir. 2010). As the Fourth Circuit has indicated, “the key factors bearing upon the question of whether a search by a private person constitutes a Government search are: ‘(1) whether the Government knew of and acquiesced in the private search; and (2) whether the private individual intended to assist law enforcement or had some other independent motivation.’” Richardson, 607 F.3d at 364 (quoting United States v. Jarrett, 338 F.3d 339, 344 (4th Cir. 2003)).

Here, Carpathia’s communications with Megaupload satisfy both prongs. The Government not only knew of Carpathia’s actions but orchestrated them. Indeed, the Government’s affidavit in support of the June 24, 2010 search warrant expressly requested that “Carpathia and its customer MegaUpload be permitted to view the warrant and Attachments A and B to the warrant to assist them in executing the warrant.” (See Affidavit in Support of June 24, 2010 Search Warrant, ¶ 32, attached as Exhibit A.) Correspondingly, the Order sealing that warrant, which “found that revealing the material sought to be sealed would jeopardize an ongoing criminal investigation,” authorized the Government to provide the warrant only to Carpathia, and authorized Carpathia to “provide a copy of the warrant with attachments and this sealing order to MegaUpload.” (Order to Seal, 1:10 SW 320 (June 24, 2010) attached as Exhibit 2 to Dkt. 153-2.) In conveying the instructions to Megaupload, Carpathia noted that it had “attempted to convince the Government to work directly with Mega on this matter, but given the complex jurisdictional issues, they have been unwilling.” (See June 25, 2010 email from Phil Hedlund to Mathias Ortmann and Kim Dotcom attached as Exhibit 1 to Dkt. 153-2.) It is equally clear that Carpathia’s sole purpose in communicating with Megaupload on that date was to assist the Government in executing the June 24, 2010 warrant.

Even if the Government could somehow avoid responsibility for Carpathia’s instructions and the Magistrate Court’s sealing order, there would remain the undeniable fact that the Government failed to inform this Court of critical, exculpatory information about the circumstances under which Megaupload learned of the allegedly infringing files and subsequently cooperated with the Government’s investigation. See United States v. Leon, 468 U.S. 897, 926 (1984) (material omissions that render search warrants misleading can be grounds for invalidating warrants); Franks. v. Delaware, 438 U.S. 154 (1978); United States v. Colkley, 899 F.2d 297, 300 (1990). Megaupload submits that omission of those facts bears directly on the lawfulness of the searches and seizures in issue. See United States v. Comprehensive Drug Testing, Inc., 513 F.3d 1085, 1105 (9th Cir. 2008) (“Comprehensive Drug Testing I”), opinion revised and superseded in part by 621 F.3d 1162 (9th Cir. 2010 (“Comprehensive Drug Testing II”) (a court may order return of property pursuant to Rule 41(g) on the basis that the warrants authorizing seizure of the property were invalid); see also Fed. R. Crim P. 41(g) (a “person aggrieved by an unlawful search and seizure of property” may move for relief).

Fourth, the Government similarly attempts to distance the June 24, 2010 warrant from these proceedings by arguing that no reference to that warrant appears in the 2012 warrant authorizing search of Carpathia’s physical premises and the seizure of “records” contained on those servers. (See Redacted Search Warrant, No. 1:12-SW-41, Dkt. 145-1.) But the Government’s attempt to shift attention to the warrant authorizing search of the physical premises should not distract—that particular warrant is largely if not completely beside the point to the 41(g) proceedings instituted by Mr. Goodwin. The Government’s physical entry into Carpathia’s warehouse and imaging of the servers leased by Megaupload—after which the Government disclaimed accessing or possessing those servers (see Letter from Jay V. Prabhu dated January 27, 2012, Dkt. 32)—did not deprive Mr. Goodwin of his property. Rather, Mr. Goodwin’s property was rendered inaccessible specifically when the Government seized Megaupload’s various domain names, thereby taking down the website. Those seizures of the domain names were the subject of five separate warrants, every one of which contained the problematic representations that: “On or about June 24, 2010, members of the Mega Conspiracy were informed, pursuant to a criminal search warrant from the U.S. District Court for the Eastern District of Virginia, that thirty-nine infringing copies of copyrighted motion pictures were present on their leased servers at Carpathia Hosting, a hosting company headquartered in the Eastern District of Virginia”; and “As of November 18, 2011, thirty-six of the thirty-nine infringing copies of copyrighted motion pictures were still being stored on servers controlled by the Mega Conspiracy,” after it was informed of the infringing content. (See Dkt. 145-1 at 11, 38, 61, 84, 105-106.) What is more, the snippet about the June 24, 2010 warrant also appears in the Superseding Indictment, which is the instrument ultimately responsible for the prosecution, asset freezes and domain seizures that continue to preclude Mr. Goodwin from accessing his data. (Dkt. 34 at ¶ 26.)

Fifth (and finally), the Government maintains that it recited other, independent support for the proposition that Megaupload had criminal knowledge of infringing content; in this regard, the Government cites paragraphs appearing in the warrant for search of the physical premises. (Dkt. 155 at 3 (citing Redacted Affidavit in Support of Search Warrant, No. 1:12 SW 41 (Jan. 18, 2012) ¶¶ 13, 15-17.) Those paragraphs describe how third-parties uploaded content onto Megaupload.com (id. ¶ 13), certain organizational features of the megavideo.com website (id. ¶ 15), the delivery of takedown notices at megaupload.com email addresses (id. ¶ 16), and delivery of takedown notices through URL links (id. ¶ 17). Yet none of those paragraphs points to the type of direct knowledge by Megaupload that the snippet about the June 24, 2010 warrant does. Even when read in combination, they are weak, uncorroborated and conclusory.

Again, the knowledge supplied by the June 24, 2010 warrant is the only direct, corroborated evidence of knowledge that the Government recited in any of the warrants it executed in connection with this case. Because Megaupload’s alleged mens rea underlay the Government’s claim of probable cause for the sweeping searches and seizures that ensnared the property of innocent users such as Mr. Goodwin, the Government’s recited bases for that mens rea fall squarely within the purview of any Rule 41(g) hearing.

Megaupload submitted to the United States Federal Court in Virginia today a legal brief arguing to the Court that the DOJ's core evidence submitted under seal in the secret domain name seizure process was misleading and asked the Court for a remedy.

In the brief Megaupload argued that:

This Court recently ordered the unsealing of the documents previously submitted by the United States to support taking down the Megaupload cloud storage site by seizing the domain name(s) --- such unsealing lays bare a crucial omission the Government made to the Court in the secret process. Specifically, the Government’s affidavits underpinning the warrants omitted critical, exculpatory information regarding whether, why and how Megaupload knew it was hosting criminally infringing files. The Government represented that, “[o]n or about June 24, 2010, members of the Mega Conspiracy were informed, pursuant to a criminal search warrant from the U.S. District Court for the Eastern District of Virginia, that thirty-nine infringing copies of copyrighted motion pictures were present on their leased servers at Carpathia Hosting, a hosting company headquartered in the Eastern District of Virginia,” and that, “[a]s of November 18, 2011, thirty-six of the thirty-nine infringing copies of copyrighted motion pictures were still being stored on servers controlled by the Mega Conspiracy,” after it was informed of the infringing content. (See Dkt. 145-1 at 11, 38, 61, 84, 105-106) This snippet—which appears in each relevant affidavit and is the only direct, corroborated evidence the Government purports to offer as proof that Megaupload had requisite knowledge—suggests that Megaupload was warned of its potentially criminal complicity yet persisted in hosting the files without concern for their illegal content. The affidavits, in short, paint Megaupload as a brazen scofflaw.

The truth, as the Government well knows, is quite different. Megaupload had every reason to retain those files in good faith because the Government had sought and obtained Megaupload’s cooperation in retrieving the files and warned that alerting users to the existence of the warrant and the Government’s interest in the files could compromise the investigation. Carpathia informed Megaupload that the warrant was sealed, and that only Carpathia and Megaupload, not the users of the infringing files, were to know of its existence, and at the Government’s request provided Megaupload a copy of the sealing order. The Government selectively parsed its account so as to exclude critical facts that negate any notion that Megaupload had criminal mens rea to retain the infringing files. The Government deliberately neglected to apprise the Court that:

Megaupload received the June 24, 2010 warrant in the course of cooperating with a Government investigation;

Megaupload was informed of the June 24, 2010 warrant by its vendor, Carpathia Hosting (“Carpathia”), with the Government’s consent and for the express purpose of obtaining Megaupload’s voluntary assistance with executing the warrant;

The Government declined to communicate directly with Megaupload about the warrant, instead deputizing Carpathia to communicate on its behalf;

Carpathia directed Megaupload not to open “EM7 tickets” on the infringing files—which would have alerted a larger number of people to the existence of the warrant and jeopardized the secrecy of the investigation—“[b]ecause of the Government’s seal on the warrant,” asking that Megaupload instead deal directly with a single person at Carpathia;

Megaupload’s preservation of the status quo, particularly by not taking down or otherwise disturbing the files identified in the June 24, 2010 warrant, was faithful to the Government’s express desire, reflected by the Magistrate Judge’s order sealing the warrant (provided to Megaupload by Carpathia at the Government’s request) and by Carpathia’s instructions on the Government’s behalf, for Megaupload to ensure that evidence would remain preserved and that the target users would remain unaware of the investigation; and

Consistent with its stated desire that the warrant and investigation remain confidential so as not to tip off the target users, the Government—neither directly nor through Carpathia—ever requested that Megaupload take down the files identified in the June 24, 2010 warrant.

Although it is now apparent that Megaupload, itself, was the target of a criminal investigation at the time it received the June 24, 2010 warrant from Carpathia, Megaupload was led to believe otherwise at the time. Indeed, it was steered to cooperate with the Government by Carpathia’s express assurance that the Government had given it “no reason to believe the [sic] MegaUpload is the target of the investigation.” (See June 25, 2010 email from Phil Hedlund to Mathias Ortmann and Kim Dotcom, attached as Exhibit 1.) By all indications, the Government tapped Carpathia to convey the June 24, 2010 warrant to Megaupload, thereby planting what the Government would later claim, for purposes of this case, amounted to criminal knowledge that Megaupload was hosting infringing files, while simultaneously lulling Megaupload into thinking it was not a target of its ongoing investigation (which the Government dubbed its “Mega Conspiracy” investigation)—and, what is worse, affirmatively leading Megaupload to understand from the warrant’s sealing order and Carpathia’s representations that Megaupload should take no action with respect to the infringing files lest it tip off the ostensible targets. In sum, the Government came to paint as criminal the very course of conduct by Megaupload that the Government had induced in requesting good-faith cooperation with an investigation that was to remain secret. Most incredibly of all, however, the Government then came before this Court, ex parte, with a selective, distorted account whereby the Government omitted mention of facts—well known to the Government—indicating that Megaupload was of an innocent state of mind in cooperating with what it was told was an ongoing, secret investigation of the infringing files at issue. The Government deliberately misled the Court that signed the search warrants and failed to disclose material exculpatory information in violation of Brady v. Maryland, 373 U.S. 83 (1963).

A warrant is defective—and the resulting search and seizure are unlawful—if the affiant was dishonest or reckless in preparing his affidavit in support of the warrant, and if the allegedly false statement is necessary to the finding of probable cause, regardless whether a searching officer proceeded in good faith. United States. v. Leon, 468 U.S. 897, 926 (1984); Franks v. Delaware, 438 U.S. 154, 156 (1978). A court may order return of property pursuant to Rule 41(g) on the basis that the warrants authorizing seizure of property were invalid. SeeUnited States v. Comprehensive Drug Testing, Inc., 513 F.3d 1085, 1105 (9th Cir. 2008) (“Comprehensive Drug Testing I”), opinion revised and superseded in part by 621 F.3d 1162 (9th Cir. 2010) (“Comprehensive Drug Testing II”).

Megaupload submitted a brief today to the United States Federal Court in Virginia in support of its motion to dismiss. We provide a portion of the introduction below - the brief can be found here.

Nearly ten months have elapsed since Defendant Megaupload Limited (“Megaupload”) was branded a criminal, yet it has had no opportunity to date to clear its name or to challenge the charges against it. Ten months have elapsed since every penny of the company’s assets was frozen, yet there has been no pre or post-seizure hearing for Megaupload to contest the propriety of that action. During these past ten months, Megaupload—once estimated to be the 13th most frequently visited website on the entire Internet (See Dkt. 34 at ¶ 3)—has been wiped out for all intents and purposes. All this time, the Government has not complied with Rule 4, has not attempted to comply with Rule 4, and has not identified any prospect that it might comply with Rule 4 any time in the foreseeable future. Moreover, Megaupload’s servers—which house the universe of relevant evidence against which the Government’s allegations against Megaupload might potentially be fully and fairly assessed one day—have been taken offline for lack of funding (while the Government sits on all the assets it has seized from Megaupload) and have spent much of this year on the floor of a warehouse. And Megaupload’s innocent consumers have now gone nearly ten months without any access to their property.

The ability of a criminal defendant to mount, not only in theory but also in practice, a fair defense should be beyond question. Sadly, the Government’s conduct of this case is to the contrary, raising grave questions about whether the Government is out to play judge, jury, executioner, and asset collector without benefit of the adversarial process and protections, including those of Rule 4, to which this corporation is entitled. Certainly the prosecution to date—by freezing assets, by foreswearing proper service, and by steadfastly refusing to lift a finger or spend a cent to prevent ongoing spoliation of server evidence (not to mention deprivation of innocent users’ rightful property)—has denied Megaupload any semblance of due process.

Megaupload filed a brief today requesting permission from the US Court to participate in the upcoming hearing on consumer data access. Megaupload is forced to file such a "special request" while it objects to US jurisdiction and awaits a final ruling on the cloud storage company's motion to dismiss.

Megaupload argues three core basis in support of its request:

First, as the Cloud storage internet service provider that hosted Mr. Goodwin’s and similarly situated users’ data, Megaupload is the proper entity under state and federal privacy laws, including the Stored Communications Act, codified at 18 U.S.C. Chapter 121 §§ 2701– 2712, to access the data for purposes of coordinating its return.

Second, especially because Megaupload designed and presided over the system on which Mr. Goodwin’s and similarly situated users’ data resides, Megaupload is best positioned—with respect to its technology, knowledge-base and otherwise—to locate, access, and retrieve that data in an expeditious, cost efficient manner. Megaupload has a strong legal interest in customer data access that goes beyond Mr. Goodwin and is uniquely positioned through its counsel to argue the factual, logistical, and legal issues to help develop a more accurate record for the Court’s 41(g) analysis.

Third, issues of data preservation and consumer access are inextricably bound up with Megaupload’s criminal defense and the due process rights that attach. Megaupload’s servers are presently unplugged, offline, and being stored at facilities owned by Carpathia Hosting, Inc. To the extent the Court orders the return of Mr. Goodwin’s or other similarly situated users’ property, the servers will need to be restored to a condition that allows access to and retrieval of data. Megaupload has a substantial interest in ensuring that the servers are brought back online and the data is subsequently retrieved in a manner that preserves the corpus of data and metadata so that relevant evidence is available for use in Megaupload’s criminal defense, as well as in the civil litigation that has been separately brought before this Court against Megaupload.

Megaupload filed a renewed motion to dismiss in Federal Court in Alexandria, Virginia today arguing that the US DOJ using criminal procedures to take down the entire Megaupload cloud storage site and freezing corporate assets while at the same time failing to attempt service of the criminal indictment for over 9 months violates due process and ought to lead to dismissal of the case until a point in time, if ever, when service is effectuated.

Megaupload requested that the Federal Court consider a supplemental brief provided to the Court today arguing for dismissal. The supplemental brief was provided to the Court in an effort to respond to issues raised at the recent hearing.

Megaupload argues in the supplemental brief that the Mutual Legal Assistance Treaty between the United States and Hong Kong (“MLAT”) is not a substitute for the Federal Rules of Criminal Procedure governing service of a summons on a corporate defendant. The MLAT does not purport to expand the personal jurisdiction of the courts of the United States or otherwise alter the express terms of the Federal Rules. It is merely a mechanism to serve documents extraterritorially where U.S. law already authorizes extraterritorial service. It permits nothing more. Where the Federal Rules require domestic service, like in the instant case, MLATs play no role at all, and certainly do not alter the Federal Rules.

Megaupload filed a brief today responding to the DOJ asking the US Court to dismiss the criminal case and indicating that the United States has failed to provided any case law support for their suggested alternative methods of service of a foreign corporate entity.